Pakistan needs foreign investment and debt flows to escape its low-growth equilibrium. The rapidly shifting global geopolitical landscape favours Pakistan, and regional news is encouraging. However, economic headlines are disheartening, as many foreign companies are exiting Pakistan.

The latest shock came with Procter & Gamble (P&G) announcing its exit. While global strategic reasons may explain this, P&G has left similar markets before where it faces stiff competition from local brands. Still, such optics are damaging. For a country desperately needing manufacturing investment, American and European brands pulling out is a poor omen.

Recently, Ingredion Incorporated sold its majority shares in Rafhan Maize to Nishat Group. Though the company had been on the market for some time, news of American firms leaving Pakistan undermines confidence, especially as Pakistan’s finance team plans investment roadshows in the US.

In another blow, top textile exporter Gul Ahmed decided to exit the apparel business due to persistent losses. Similar sentiments prevail across many garment exporters, even those with vertical integration. Several have already ceased fashion garment exports, and many continue to lose money.

The garment industry depends on labour arbitrage as a value-added business. Pakistani companies cannot compete with Bangladesh’s, where minimum wages including benefits stands at $146 compared to $256 in Pakistan. In Bangladesh, mostly women, often the second income earners, work at lower wages, a dynamic absent in Pakistan. Meanwhile, Egypt and Bangladesh attract FDI in garment exports while local firms shrink.

High energy and taxation costs burden Pakistani manufacturers. Some regulatory requirements are absurdly onerous. Under these conditions, manufacturing is becoming unviable, and the country increasingly functions as a trading hub. Can Pakistan afford to lose manufacturing? How can it attract investment?

Some might point to recent new entrants and business handovers: such as Wafi acquiring Shell’s business or Aramco buying an oil marketing company challenging local refineries. Yet BYD refuses to invest independently, as Maga Motors is fully locally owned.

Claims that local groups are still initiating greenfield projects are met with skepticism. BYD’s investment is rumoured to be more about building a modern business for the next generation than commercial logic. Likewise, Nishat’s pricey purchase of Rafhan Maize does not appear to make sense on purely commercial basis.

Pakistan’s investment-to-GDP ratio is at its lowest in fifty years and is a fraction of its competitors’. Last year’s FDI, adjusted for retained earnings, was at a mere $300 million. Over the past decade, Chinese investments formed two-fifths of inflows, mainly in the power sector. Many IPPs installed in the late 2010s guarantee returns, but reinvestment remains limited due to payment delays and restrictions on dividend repatriation. This power sector FDI accounts for most of the recent inflows.

No spin or speeches can reverse this reality. There is a severe lack of viable greenfield manufacturing projects in Pakistan. Manufacturing investment, especially by MNCs, tends to flow to growing markets. With stagnant per capita income, attracting market-based investments is nearly impossible.

Pakistan must rethink an economic model that currently empowers traders and informal businesses instead of manufacturers.

Energy costs need rationalization. The government must stop insisting on full cost recovery for inefficient distribution and generation companies and avoid forcing industry onto the grid. Tax rates, both income and indirect taxes such as GST, must be rationalized. Excessive GST and taxes fuel smuggling and unfairly advantage traders, likely driving P&G’s shift to third-party distribution. Drastic reduction in GST and rationalizing income tax amid energy deregulation are critical.

Regulations are another burden, often imposed under pressure from multilateral agency without rationale. Implementation authorities demand vehicles and increased salaries funded by loan programmes, while the macroeconomic focus remains solely on official inflows. MNCs, especially in the food sector, cite this as a major hurdle to new and continuing investments.

However, beneath the visible challenges of energy costs and regulatory burdens lie deeper issues of governance and the rule of law. The absence of a truly level playing field undermines fair competition. On top of that, the snail-paced structural reforms and persistent policy uncertainties make Pakistan an unattractive destination for international capital. Until these fundamental governance issues are addressed alongside economic reforms, the country will struggle to reverse its manufacturing decline and regain investor confidence.

In essence, Pakistan is slowly trading the sturdy engines of industry for the sparkle of middlemen’s markets. But no amount of regulatory tinkering or photo-op diplomacy will fuel growth. Without decisive reforms and a fair competitive environment, the nation risks becoming the world’s largest bazaar: with little substance to offer and profits made only by those who sell the same goods many times over.

Note: This article first appeared in the Business Recorder on October 06, 2025.